Friday, February 13, 2015

Enforcement Actions: Week in Review

SEC ENFORCEMENT ACTIONS

SEC Proposes Rules for Hedging Disclosure
February 9, 2015(Litigation Release No. 26)
The SEC has announced the approval of the issuance of proposed rules. The proposed rules require a company to disclose whether its directors, officers, and other employees are permitted to hedge the company’s equity securities. The proposed rules are mandated by Section 955 of the Dodd-Frank Act, and the rules are intended to better inform shareholders by increasing the transparency of hedging policies.

SEC Charges Former Brokerage CEO for His Role in Fraudulent Scheme
February 10, 2015(Litigation Release No. 27)
The SEC has charged Craig S. Lax for having ConvergEx subsidiaries under his control who engaged in a fraudulent scheme. The ConvergEx subsidiaries misled customers to pay greater amounts than disclosed commissions for buying and selling securities. The ConvergEx Group subsidiaries were previously charged by the SEC, paying $107 million to settle charges. In addition, the SEC has charged two former employees in that enforcement action, and the SEC even later separately filed a case against a different former ConvergEx subsidiary CEO. Lax admitted wrongdoing and agreed to settle the SEC’s charges by paying more than $783,000. Lax has agreed to be barred from the securities industry for at least five years.

SEC Announces Half-Million Dollar Clawback from CFOs of Silicon Valley Company That Committed Accounting Fraud
February 10, 2015(Litigation Release No. 28)
In compliance with an SEC order, former Saba Software CFOs, William Slater and Peter E. Williams III, have agreed to return almost a half million dollars to their former employer. Slater and Williams received $337,375 and $141,992, respectively, as bonuses and stock sales profits during the same time that their company was altering financial statements. From 2008 to 2012, during their consecutive terms as CFOs, Saba Software has been found to have overstated pre-tax earnings and made materially false statements concerning their revenue recognition protocol. Under Section 304 of the Sarbanes-Oxley Act, Slater and Williams must return profits and bonuses they received during the time of the fraud, regardless of whether they were involved. Neither has been personally charged with the fraud. Saba Software and two other former executives were charged by the SEC with accounting fraud last year.

SEC Announces Charges Against Atlanta Man Accused of Insider Trading in Advance of Tender Offer
February 11, 2015(Litigation Release No. 29)
Charles L. Hill Jr. has been accused for insider trading and charged by the SEC for exploiting nonpublic information that he learned from person who was a friend of a Radiant Systems executive. Hill illegitimately made approximately $740,000 by misusing nonpublic tender offer information, trading in the stock of Radiant Systems. The matter is scheduled for a public hearing and it is to be decided if any remedial actions are to be placed.

Heather Seidel Named Chief Counsel in SEC’s Division of Trading and Markets
February 11, 2015(Litigation Release No. 30)
The SEC has announced that Heather Seidel has been appointed as Chief of Counsel for the SEC’s Division of Trading and Markets. Given her new role, Seidel will be providing legal and policy advice to the Commission on matters that affect broker-dealers and securities markets along with other duties. Seidel’s professional experience that qualifies her the Chief of Counsel title include being an Associate Director in the Office of Market Supervision and having worked in the division as an Assistant Director, Senior Special Counsel, and Attorney Fellow.

SEC Charges Mutual Fund Adviser in Connection With Improper Handling of Fund Assets
February 12, 2015(Litigation Release No. 31)
An investment adviser was charge in connection to Water Island Capital LLC’s mismanagement of fund assets. Millions of dollars of the funds’ cash collateral were being maintained at broker-dealer counterparties instead of the funds’ custodial bank. Water Island Capital LLC was charged for failing to ensure that all cash collateral was held in the custody of the funds’ bank, roughly $247 million in cash was improperly handled. Water Island Capital LLC has agreed to the SEC’s cease-and-desist order, paying a $50,000 penalty to settle the SEC’s charges.

SEC Announces Agenda, Panelists for Proxy Voting Roundtable
February 12, 2015(Litigation Release No. 32)
The SEC has announced the schedule, topics and panelists for its roundtable on possible improvements to proxy voting. The roundtable, scheduled for February 19th, will consist of two, one and a half hour panel discussions: “Universal Proxy Ballots” and “Retail Participation in the Proxy Process”. The first panel, consisting of ten, will be moderated by Keith Higgins, Director of the Divison of Corporate Finance and Michele Anderson, Chief of the Office of Mergers and Acquisitions, Division of Corporate Finance. The second panel, consisting of twelve, will be moderated by Keith Higgins and David Frederickson, Chief Counsel and Associate Director, Division of Corporate Finance. The roundtable will begin at 9:30 a.m. at the SEC’s DC headquarters and is open to the public. The event will also be shown live on the SEC website.

Pamela C. Dyson Named SEC Chief Information Officer
February 12, 2015( Litigation Release No. 33)
The SEC has announced the official appointment of Pamela C. Dyson as Chief Information Officer, who has served as acting CIO since October of last year. Since joining the SEC in 2010, Ms. Dyson has held other key positions including Deputy CIO, Office of Information Technology and Assistant Director, Enterprise Operations. As Chief Information Officer, Ms. Dyson be in charge of integrating technology with the efforts of the SEC in order to better serve investors and promote healthy, efficient markets.

SEC Announces Fraud Charges Against Purported Hedge Fund Manager
February 13, 2015(Litigation Release No. 34)
The SEC has charged Moazzam “Mark” Malik with stealing money from his investors. Malik conned investors into supporting his expensive lifestyle. Malik built up a façade claiming to be a hedge fund manager of Wolf Hedge LLC which supposedly had roughly $100 million in assets under management. In reality, Malik’s fund never held more than $90,177 in assets, and Malik was soliciting investors promising them consistent high returns when in reality. The SEC’s investigation is continuing. In the meantime, the SEC seeks final judgment to disgorge their ill-gotten gains, prejudgment interest and penalties, and seeks a temporary restraining order to freeze Malik and his fund’s assets to avoid further violations.

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